How to Shop for a Home Loan
Decide what avenue to take to obtaining your financing: Credit unions, banks, big lender retail stores (e.g., Consider more than just interest rates., Negotiate rates if you are using a broker., When you are quoted an interest rate, ask the broker...
Step-by-Step Guide
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Step 1: Decide what avenue to take to obtaining your financing: Credit unions
Countrywide) and mortgage brokers.
Credit unions usually provide the best value and service, but regular banks and the big lender retail shops will also provide good service.
A mortgage broker is a "wholesaler" who uses several lenders to service their customers.
The advantage of a broker versus bank or retail store is that the broker has more selection of rates and products.
A bank or big lender retail store will only offer the products their company provides. -
Step 2: big lender retail stores (e.g.
Ask for and question all of the charges on a Good Faith Estimate.
This is a required document and while it is only an estimate, question the charges listed and ask what they are for and if they can change. , A broker makes his money in two ways:
Origination fees or yield spread.
Banks that lend money to consumers through brokers, entice the broker to use them with commissions, commonly known as yield spread or rebates.
Essentially, the broker makes more money for the loan when he can sell a higher interest rate to the consumer.
This means that your interest rate is, to an extent, negotiable, as are many of the fees on a Good Faith Estimate. , A broker may not charge an origination, but will receive a large yield spread for the rate quoted.
A fair amount would be a total of 1% of the loan amount, from yield spread, origination or combination of the two.
A broker usually wants to make at least 2%.
Don't pay an origination unless he is telling you he is not getting anything on the back end of the deal. , This is just another way for the broker to get paid when a customer wants a specific rate.
If the bank is offering a particular rate, but requires money up front to get it, the customer will pay the discount and the broker will get his cut with the origination fee.
Or, the rate will be par, which means the bank charges nothing, and the broker will get his money with the origination fee. , -
Step 3: Consider more than just interest rates.
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Step 4: Negotiate rates if you are using a broker.
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Step 5: When you are quoted an interest rate
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Step 6: ask the broker to tell you what his origination fee
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Step 7: rebate or yield spread on that rate is.
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Step 8: Consider paying discount fees or origination fees to get a lower rate.
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Step 9: Negotiate these items for your best deal.
Detailed Guide
Countrywide) and mortgage brokers.
Credit unions usually provide the best value and service, but regular banks and the big lender retail shops will also provide good service.
A mortgage broker is a "wholesaler" who uses several lenders to service their customers.
The advantage of a broker versus bank or retail store is that the broker has more selection of rates and products.
A bank or big lender retail store will only offer the products their company provides.
Ask for and question all of the charges on a Good Faith Estimate.
This is a required document and while it is only an estimate, question the charges listed and ask what they are for and if they can change. , A broker makes his money in two ways:
Origination fees or yield spread.
Banks that lend money to consumers through brokers, entice the broker to use them with commissions, commonly known as yield spread or rebates.
Essentially, the broker makes more money for the loan when he can sell a higher interest rate to the consumer.
This means that your interest rate is, to an extent, negotiable, as are many of the fees on a Good Faith Estimate. , A broker may not charge an origination, but will receive a large yield spread for the rate quoted.
A fair amount would be a total of 1% of the loan amount, from yield spread, origination or combination of the two.
A broker usually wants to make at least 2%.
Don't pay an origination unless he is telling you he is not getting anything on the back end of the deal. , This is just another way for the broker to get paid when a customer wants a specific rate.
If the bank is offering a particular rate, but requires money up front to get it, the customer will pay the discount and the broker will get his cut with the origination fee.
Or, the rate will be par, which means the bank charges nothing, and the broker will get his money with the origination fee. ,
About the Author
Brian Stokes
Specializes in breaking down complex organization topics into simple steps.
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